NTG Nordic Transport Group AS
CSE:NTG
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NTG Nordic Transport Group AS
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Welcome to our Q1 2024 conference call, and thank you for dialing in.
If we go to Page 2 of the presentation, we kindly ask you to take a look at the important notice provided in the slide.
If we move on to Page #3, you see the presenting team today. My name is Mathias Jensen-Vinstrup, and I'm the new Group CEO of NTG Nordic Transport Group. And with me today, I have Christian Jakobsen, our Group CFO.
If we move on to Page #4, you see the agenda for this conference call, which includes the highlights for the first quarter of the year, a review of the financial performance on a group level and for each of our 2 divisions, a presentation of other key figures and then a reiteration of the outlook for 2024 that we maintain. By the end of the presentation, the line will be open to questions from the audience.
If we move on to Page #5, you see the highlights for 2024. And -- the market conditions from the fourth quarter of 2023 continued into the first quarter of 2024, with macroeconomic headwinds and in general, challenging market conditions. Our performance in the first quarter of this year was also affected by the strikes in Finland, which lasted for almost 4 weeks in the first quarter and about 1 week in the second quarter so far as well as fewer working days compared to last year, mainly due to the timing of the Easter holiday. So both transport markets continue to be characterized by fierce competition and aggressive pricing behavior in Q1, and we continue to invest in securing volumes across both divisions.
If we take a look at the road transport side of the business, we have been quite successful in securing existing volumes and also winning new accounts over. This has been with a very aggressive pricing strategy, which did take a toll on the gross margin for the main road entities during the first quarter.
The Baltic and the Finnish traffics are, in general, still under a significant pressure, driven by macroeconomic headwinds following, in particular, also the termination of the trade relationships with Russia, high inflation, but also the fact that a significant share of the European hauliers are based out of the Baltic.
And with the adverse market environment, this has led to an increased competition in general in the markets in which we operate and which added to the price pressure in the market in general. From a spot market perspective, availability of capacity continued to keep spot rates at low levels during the first quarter of 2024.
In Logistics, we are seeing a rather stable and satisfactory performance across our main markets, being Denmark, Sweden, the Netherlands and the U.K., even though utilization levels are not at full capacity at the moment. In general, while customers are still hesitant to rebuild storages, this behavior is less pronounced as compared to before COVID and where the just-in-time concept prevails.
Nowadays, we are seeing customers being reminded again and again about how fragile supply chains are, which emphasizes the importance of building and maintaining buffer stocks and this also supports demand in this part of our business.
In the Air & Ocean business -- or in the Air & Ocean division. We still suffered from very fierce competition, low activity levels and yields under pressure in the first quarter of 2024, as the SME segment, where we mainly do business, have seen a fierce competition from a multitude of players.
In Q1, the file counts held up pretty well compared to the lower activity levels in the market and volumes, as measured by kilos and CEUs, showed a similar pattern, whereas lower yields are a significant driver of the results in the Air & Ocean division in the first quarter of the year.
While the rerouting of ships, as a result of the Red Sea crisis led to increased rates, in general, in Q1, as longer lead times absorbed some of the capacity flowing into the market on the ocean side, the higher rate environment has not had any positive influence in our financial results.
In Q1, the overcapacity in the market increased the certainty of uplift, which resulted in an even higher focus on price and consequently will generally lower yields. While the volumes trended lower in the first quarter, yields were the main driver of the general declines, as I described before. But in addition to the market conditions in general, the results for the first quarter of 2024 in the Air & Ocean division were also impacted by certain geographies not living up to expectations.
In Germany, we are facing an ailing economy and low volumes across the board. And while restructuring initiatives have been introduced, which also affected our performance in the quarter, we are now onboarding new customers again, thanks to investment in particular, in sales. And we are still actively working with the local teams to improve performance going forward.
In the U.S., we came off to a very slow start of the year, as we've been focusing on also building a new start-up supply chain solution. And these investments also weigh on the results for the first quarter. But also in the U.S., we have seen a positive tendency towards the end of Q1.
And finally, in the U.K., we have also been investing in the footprint. Going forward, we have opened 2 new branches, and this also weighs on the results for the division in the quarter, although to a lesser extent than the previous 2 geographies.
So all in all, the performance of the division is driven by fierce competition, driving lower -- also lower activity levels, and this drives lower yields and then the more idiosyncratic challenges that I described before.
So from an Air & Ocean perspective, going forward in the coming weeks and in the coming months, our focus will center around a range of areas. So first, we will focus on the challenges from a country perspective that I described before. And we are working closely and proactively through addressing these challenges and improving the trajectory going forward.
And second, we will focus on maintaining controlled volumes in what is a very competitive market, which will position us for a potential rebound if that occurs. But more tangibly, controlled volumes are, from our perspective, a prerequisite to drive increased GP per shipment from a totality perspective. Meaning, that by developing our intercompany trade length and by leveraging our network in both ends, we will be able to keep more GP within the firm. And we have already registered the first signs of progress in that respect.
Third, in a market like this, productivity is perhaps more important than ever as we are making less GP per file that we manage. And we just need to see more files per FTE to counterbalance the current environment. And with CargoWise now fully rolled out across the Air & Ocean division, we are in a good position to improve our operating procedures, with a view to increasing productivity as measured by exactly files per FTE.
And finally, we will continue to keep a very close eye on the cost side. And we continue to evaluate the appropriateness of the cost base in a market environment like this.
We do see early signs of a stabilization in selected geographies. And while it remains a rather blurry picture out there, we continue to see significant -- and we continue to see significant price pressures from customers. We do also see signs of demand as well as supply-side dynamics changing gradually.
On the road side, for instance, the procurement prices on hauliers seem to have reached a very bottom. Meaning, that further reductions are not possible without capacity leaving the market. And from a spot market perspective, we see signs of prices bottoming out on the continent as well as what could be signs of a very early rebound in the Nordic region on the road side again.
And so we could be approaching a vacuum-like situation, where we have priced aggressively to secure volumes and to secure new volumes, but where capacity is becoming less abundant. Meaning, that some customers are also starting in certain places to focus on locking in rates for longer as opposed to exclusively focusing on getting the lowest price possible.
So we're definitely paying attention to this, like we always do. And we will continue to monitor the market closely to make sure that we protect our margins in case the dynamics continue to change and in case a potential market rebound occurs later in the year.
As I mentioned regarding Air & Ocean, we have seen a slight stabilization towards the end of the quarter, supported by restructuring initiatives in Germany, more momentum in the start-up in the U.S. and progress on our trade lane development efforts, which could indicate that the worst may be behind us. But I would say, all in all, we still see a very low level of activity.
And talking about a recovery is definitely too soon to make any firm conclusions on. And the jury is still out in terms of concluding, if any, changing dynamics are sustainable. We continue to invest in the sales organizations in both divisions to support future growth and to support the ongoing uptick in volumes that we control.
And we also keep a very close eye out on the market dynamics to make sure that we protect our margins, both on the buy-side and on the sell-side. Finally, the 2024 guidance is maintained. And for 2024, we still expect an adjusted operating profit between DKK 500 million and DKK 580 million.
And with those words, I will hand it over to Christian Jakobsen, who will give you a more granular walk-through of the financial results in the first quarter.
Yes. Thank you, Mathias. On Page 6, you see the main financial highlights for the group. Net revenue for Q1 2024 totaled DKK 2.2 billion, representing a decrease of 4% compared to Q1 2023, where organic growth contributed negative 6%, driven by the macroeconomic headwind in North Europe, lower freight rates and then the low number of working days to the timing of Easter, as Mathias mentioned.
The acquisition of RTC contributed with 1.3% and currency effect had a positive impact of 1.1% in 2024. Gross profit decreased 2.9% to DKK 463 million, corresponding to a gross margin of 21.5% versus 21.2% in Q1 '23. And please also notice that the number of working days in Q1 '24 also affected the gross profit for the quarter.
Adjusted EBIT decreased 24% to DKK 140 million in '24. The drop in operating margin comes from the pressure on volumes and yields, but also the investment in start-up of SCS, and the reorganization in Germany of around DKK 6 million has declined the EBIT.
Then if we flip to Page 7, you see a summary of the key financial performance indicators. As illustrated to the left, the gross margin development for the group was, when compared to the same period last year, pretty stable, primarily due to the lower rates were mainly -- and the mean pressure on the freight rates and offs and the yield and then offset with a change in product mix and the acquisition of RTC, which had a higher gross margin than NTG, in general.
In the middle of the slide, you see the conversion ratio was decreased compared to last quarter and the same period last year. The development was mainly driven by the effects of the pressure on GP and the number of working days, but also the DKK 6 million, as I mentioned before, had a negative effect.
And on the right-hand side, you see the development of the -- in the operating margin, which decreased both compared to same period last year and compared to last quarter. Again, this was mainly an effect of the aforementioned reasons.
And then if we flip to Page 8, you see the financial review for the Road & Logistics division. The division generated a net revenue of DKK 1.6 billion in the quarter, 2.7% below the same period last year. The decrease was mainly related to organic growth, contributing with negative 4.8% of the total growth, mainly driven by the lower number of working days. And then the acquisitions contributed with 1.8% and FX effect had a positive effect of 0.3% during the quarter.
Gross profit decreased 0.3% to DKK 347 million in the quarter, corresponding to the gross margin of 21.6%. As mentioned before, the acquisition of RTC had a positive effect on the gross margin. But also the close down of a small operation in Germany had an effect. And then you saw a change in our product mix.
Adjusted EBIT decreased 12% to DKK 103 million, corresponding to an operating margin of 6.4%. We have seen that our main market in the Northern Europe had macroeconomic headwind, and that has, of course, affected the quarter.
And then if we flip to Page 9, you see the financial review for the Air & Ocean division. The division generated a net revenue of DKK 553 million in the quarter, a decrease of 9% compared to 2023. The decrease was mainly driven by negative organic growth, driven by mainly the freight rates, which have been lower quarter-on-quarter and then the challenges, as Mathias mentioned, in Germany and the shutdown of the -- and therefore, the shutdown of the two offices in Germany.
FX effect had a negative effect of -- on growth of minus 0.3% during the quarter. Gross profit decreased 10% to DKK 116 million, corresponding to gross margin of 21% in the quarter, compared to 21.3% in Q1 '23. And then adjusted EBIT decreased 63% to DKK 12 million, corresponding to an operating margin of 2.2% versus 5.3% in Q1 '23. The margin development was impacted by the challenges in the division and then also the one-off due to the start-up of SCS and the close down of the two offices in Germany.
And then if we flip to Page 10, you see an overview of other key figures. On the left, you see that the net working capital increased to minus DKK 18 million as per March 31, '24, an increase of DKK 191 million compared to the end of Q4.
Compared to the quarter of -- same quarter of '23, the last collection day in March was due to Easter moved forward. And therefore, we have a temporary negative impact of that. And then on top of that, we have done a merger on the April 1. And therefore, we prepaid around DKK 80 million to creditors, and that is expected to come back throughout Q2.
And as a result of the development in the net working capital, the adjusted free cash flow totaled minus DKK 110 million in the first quarter compared to positive DKK 45 million in the same period last year. Finally, on the right-hand side, you see the net interest-bearing debt, excluding IFRS 16, which totaled DKK 246 million as per March 31, '24.
And then as we flip to Page 11, you see the full year outlook where we, as Mathias mentioned, keep -- maintain our expectation and we expect adjusted EBIT in the range of DKK 500 million to DKK 580 million. The outlook for '24 assumes an overall flat market environment, with soft macroeconomics and continued consumer confidence.
The Road & Logistics division is assumed to persist in the current market environment for '24, with low freight rates, soft volumes and challenging spot markets. And the Air & Ocean division is assumed to remain in the current market environment with low rates and oversupply of freight capacity, which have adverse impacts on both freight rates and yields. We continue to closely monitor the activity and adjusted capacity and cost base accordingly.
The outlook for 2024 includes the effects of the acquisition of RTC as of February '24. The transaction was closed on the February 14, but the outlook does not include potential impact from other acquisitions during the year, if any. And currency exchange rates are assumed at current levels. And because the financial and geopolitical uncertainty remains high, the assumptions underlying the outlook may change.
And that was all what we have planned for today. So operator, please hold the line for Q&A.
[Operator Instructions] Gentlemen, at this time, there are no questions registered from the conference call.
I think you asked a couple of other companies in our business that had a conference call at the moment. So therefore, I don't think that are any questions. So thank you very much for listening in, and we look forward to present Q2 in August. Thank you very much.